2019 (11) TMI 1177 - AT - Income Tax

Claim of loss due to rejection of goods - loss claimed by the assessee was not to be accepted, for the reason, that the correspondence and the joint declaration filed by them did not inspire much confidence - HELD THAT - It is not a case that the revenue had placed on record any irrefutable documentary evidence which would dislodge the authenticity of the aforesaid claim of the assessee. As regards the observations of the A.O, that now when the goods exported to M/s Ammetal FZCO, UAE were rejected, then as to why the same were not included in the inventory of the assessee, we are afraid is an absolute fallacious and misconceived view. It is not a case where the goods after having been rejected were received back by the assessee. In fact, it is a case where the goods exported on being rejected were sold at an amount below the sale price. We have given a thoughtful consideration to the observations of the lower authorities and find no justifiable reason as to why the duly substantiated claim of loss suffered by the assessee in the normal course of its business of export was not to be allowed while computing its income for the year under consideration. We thus not being able to persuade ourselves to subscribe to the view taken by the lower authorities, therein set aside the order of the CIT(A) and delete the additions/disallowance made by the A.O. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of claim of loss due to rejection of goods.
2. Consideration of the alternate plea for allowing the claim of loss as bad debts.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Loss Due to Rejection of Goods:

The assessee, engaged in the business of import and export of iron and steel, filed its return of income for A.Y. 2010-11, declaring a total income of ?17,84,45,960/-. During assessment, the Assessing Officer (A.O) observed a claimed loss of ?2,23,07,082/- due to rejection of goods. The loss stemmed from the rejection of 515.864 MT of Hot rolled Steel Wire Rods exported to M/s Ammetal FZCO, UAE, in the preceding year. The assessee contended that due to the 2008 worldwide economic crisis, steel prices plummeted, leading the importer to reject the goods. The goods were subsequently sold in Dubai at a significantly lower price, resulting in the claimed loss. The A.O disallowed the loss, citing reasons such as lack of third-party authentication of correspondence, absence of supporting documents for sale proceeds realization, and non-inclusion of returned goods in the closing inventory.

Upon appeal, the CIT(A) upheld the A.O's decision. However, the Tribunal, after reviewing the facts and documentary evidence, including correspondence with the importer and approval from the Reserve Bank of India (RBI) for writing off the unrealized export bill, found the assessee's claim substantiated. The Tribunal noted that the loss was incurred in the normal course of business due to the global economic downturn and the commercial impracticality of returning the goods to India. Consequently, the Tribunal allowed the claim of loss, setting aside the CIT(A)'s order and deleting the disallowance of ?2,23,07,082/-.

2. Consideration of the Alternate Plea for Allowing the Claim of Loss as Bad Debts:

The assessee's alternate plea was that if the loss due to rejection of goods was not allowed, it should be considered as bad debts. However, since the Tribunal allowed the claim of loss on the primary ground, the alternate plea was not deliberated further.

Conclusion:

The Tribunal concluded that the lower authorities erred in disallowing the loss claimed by the assessee due to the rejection of goods. The loss was substantiated by documentary evidence and approved by the RBI for writing off the unrealized export bill. Therefore, the Tribunal allowed the appeal, deleting the disallowance of ?2,23,07,082/- and dismissing the general ground of appeal as not pressed. The appeal was pronounced in the open court on 22.10.2019.